In the wake of a growing number of corporate
greed-inspired headlines, shareholders, workers and, more
recently, government officials had challenged the tax
avoidance move, claiming it put jobs at risk, and placed
corporate executives further from the control and oversight
of shareholders and US regulatory agencies (see
Connecticut Treasurer,
AG Challenge Stanley Works – Again
).

Margin of Error?

The New Britain, Connecticut-based tool company had
sought and won shareholder approval for the move, in a
controversial vote on May 9 by the slimmest of
margins.

That margin, and controversial instructions provided to
401(k) participants regarding the voting of unreturned
proxies, led to challenges from Connecticut state officials
and union leaders and an inquiry from the Securities and
Exchange Commission (SEC) (see
Participant Mailings
Lead to Stanley Revote
).

Stanley had predicted it would save $30 million a year
by reincorporating in Bermuda.

Less than a week ago, California Treasurer Phil
Angelides, who sits on the boards of two of the largest
pension funds in the nation, announced his intention to
pull state money out of companies that leave the US for
offshore tax havens – and proposed a blacklist of 23
companies that have undertaken such moves to avoid taxes
(see
Cal. Treasurer Targets
Firms Heading Offshore
).

In recent days members of the US Congress have taken
retaliatory steps against such measures, seeking to
withdraw lucrative government contracts from firms that
make the offshore moves. That legislation could force
firms to either forego millions of dollars in contracts or
incur significant legal and tax-related costs to return to
the US.

In June, the Senate Finance Committee approved a bill
that would treat companies that are considering or that
have made a change in their legal address since 1996 to
offshore tax havens such as Bermuda as if they never
left.

Government Impact

Stanley Chairman John Trani cited those actions in an
interview with Dow Jones, as weighing on the firm’s
decision to stay put.

According to the report Trani said that Congressional
leadership had asked Stanley on both sides of the aisle “to
support their efforts toward rectifying this situation by
enacting legislation that will create a level playing field
for companies incorporated in the U.S.”

Firms looking for some offshore relief complain that the
US corporate-tax system puts them at a severe disadvantage
compared to foreign competitors, who generally pay taxes
only on their domestic income.

While the American government has made some attempts to
mitigate that impact with a system of credits, that system
hasn’t been enough to stem the tide.

Speaking of the government intervention, Trani said “We
have honored their request, and the ball is now in their
court. Ignoring this problem will not make it go
away, but can only accelerate the trend of fewer US
headquartered companies.”